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Federal Reserve Compromises on Final Swipe Fees Rule

In what is being greeted as a major capitulation to financial institutions and the lobby representing outfits like Visa and MasterCard, the Federal Reserve Board issued a final rule establishing debit card interchange fee caps that are almost double what the independent agency pushed for originally.

The Fed’s rule is setting the cap for electronic debit transaction interchange fees, also known as swipe fees, at 21 cents per transaction with the possibility for multipliers of about 5 basis points. It appears the maximum interchange fee, per the mandate, could be as high as 24 cents on the average debit card transaction with add-ons related to areas such as fraud-prevention measures. That’s double what the Fed had proposed throughout the process that followed sweeping financial reform ushered in by the Dodd-Frank Act. The new swipe-fee cap goes into effect on Oct. 1.

The Fed estimated that merchants were charged, on average, 44 cents per transaction, and that revenue from those fees comprised somewhere between $12 and $16 billion for the financial industry in 2009 alone. The Fed noted the proposed regulations would establish standards that are more "reasonable and proportional to the cost incurred by the issuer for the transaction." But amid pressure from lawmakers and the powerful banking lobby, the Fed buckled, opting to postpone the original deadline to have the final swipe fee proposal written, late April, and eventually doubling the amount companies like Visa and MasterCard could charge merchants when customers use debit fees at their establishments.

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